Monday, February 21, 2011

The sales comparison and cost approach valuation



The sales comparison approach is comparing a subject property with the comparable properties which have recently sold with similar transactions and similar characteristic to subject property. The sales comparison approach is based on the assumption in the competitive market substitutes for similar prices. This approach is based on the supply and demand factors to tend to move the price more equilibrium with close substitute selling for similar prices. After Identifying elements of comparison & value adjustment, the recently sold comparable sales are selected and reflect to make the general pricing preference in the market. Then indicated value of the subject property be obtained from reconciled the adjusted sale prices of the comparable properties by using weighting scheme. The result of this adjustment procedure is a final adjusted sale prices for each comparable property. Then appraiser evaluates and reconciles the final adjusted sale prices of the comparable properties into a single indicated value for the subject property.
The cost approach method is the based on the depreciated reproduction or replacement cost adding the market value of the site. The value of property is measured the current cost of construction for improvement subtracting all elements of accrued depreciation from the building’s cost. The reproduction cost is the exact detail materials to construct the building today In contrast, replacement cost is equal utility to construction the money required. The old structure, reproduction cost is often difficult to estimate because of no existing materials. As a result, replacement cost is often used since it is easier to obtain. cost approach is used for the specialty properties like church, educational facilities and specially used government properties. To determine existing property, the appraiser identifies and measures sales value of site similar zoning, utilities and similar use as the subject property. the next step is to estimate reproduction or replacement cost of improvement. Third adjustments are made for all accrued depreciation including physical depreciation, functional and obsolescence.